The Enterprise System Spectator

Wednesday, December 16, 2009

Outlook brightens a bit for 2010 IT spending

Over at Computer Economics, we've just release the findings from our special November survey of IT decision-makers regarding their IT spending and staffing plans for 2010. See the six year trend chart above, with our 2010 projection.

Although the 2% projected rise for 2010 in IT spending at the median of the sample is surely not a barn-burner, it's a welcome improvement from the dismal results for this year, when IT executives at the beginning of the year expected budgets to be flat. As it turns out, that was certainly optimistic, according to our survey.

After a year of budget cuts, layoffs, and delayed projects, IT executives are looking forward to 2010 as a period of stabilization and rebuilding. According to the Computer Economics fourth-quarter outlook survey, the typical IT organization plans to raise its IT spending on operations by 2.0% in the coming year.

The in-depth survey of 139 U.S. and Canadian IT organizations shows that more than half anticipate increasing IT spending in the year ahead, with the median budget increase projected at 2.0%. The survey indicates budget cutting and layoffs are in the past for most organizations, although hiring and capital spending will continue to be restrained through at least the first half.

As one might expect, the outlook for 2010 appears upbeat only in comparison to an anxiety-filled 2009. The projected 2% rise is operational spending lags behind the 2.5% rise in 2005, during the recovery in IT spending after the previous recession.

The full report, Outlook Brightens for 2010 IT Spending, also provides detail on what specific actions--both positive and negative--IT leaders have been taking in the past three months to increase or cut IT spending levels. Interestingly, while there are plenty of cost-cutting actions still taking place, there are some positive trends as well. For example, over half of our respondents report that they have refreshed/upgraded computer hardware or started a major new project in the past three months. This is a vast improvement over the results of our survey a year ago, when few organizations were taking such actions.

Outlook for enterprise software buyersWhere does this leave buyers of ERP and other types of enterprise software? Although there are signs of an uptick in spending levels, it is still too early for this to be affecting software vendor financial performance. In other words, vendors are likely to still be hungry for new business. So if you are shopping for software, it's still a buyer's market.

In addition, there are signs in our survey that buyers are still negotiating hard on existing vendor contracts. About half of our respondents indicate they have renegotiated a vendor contract in the past three months. Keep in mind, this means all sorts of IT contracts, not just for software. The increased attention on the value (or lack thereof) of vendor maintenance contracts is likely to continue, regardless of whether the IT spending climate improves.

Tuesday, December 08, 2009

Revisting Epicor's Shared Benefits program

I wrote about Epicor's Shared Benefits program about a month ago, when it was first announced. The program, in brief, offers customers to get back half of the savings if Epicor delivers its implementation services at less than estimated, and only pay half of Epicor's hourly rates if Epicor exceeds its estimate. In essence, it's sort of a compromise between a time-and-materials project and a fixed-price engagement.

After my initial post, Epicor wanted to brief me more fully on the program, so I agreed to take a phone call this morning from Craig Stephens, Epicor's VP of Consulting Services, who is based in the UK.

Time and Materials vs. Fixed PriceThe problems of time-and-material contracts are well-understood, as many ERP prospects have heard the horror stories of projects that run well over budget. Many therefore jump at the chance to have the vendor take on the implementation as a fixed-price contract. In our buyer consulting services at Strativa, we point out, however, that this can often be a mistake, for two reasons.

Customers often don't realize that with a fixed price contract, every change in scope becomes a change order. Every assumption must be spelled out in the contract. Furthermore, as the inevitable misunderstandings become apparent during the implementation, the project manager often winds up spending more time negotiating change orders than managing the work itself.

Secondly, customers don't realize that a fixed-price contract can often cost more than a time-and-materials engagement, as the vendor immediately jacks up the price by 20% or more as a risk premium for doing the project as a fixed price.

Stephens believes that the Shared Benefits program represents a better approach, reducing the risk of a time-and-materials engagement for the customer while avoiding the risk premium required for a fixed price contract. He claims that Epicor does not include a risk premium when quoting these projects, thereby saving the customer money.

The other point that I find attractive with the Shared Benefits program is the alignment of incentives between customer and vendor. With fixed price contracts, Stephens points out, customers are under little restraint in trying to include additional scope within the fixed price. Under Shared Benefits, customers can still try to interpret the implementation plan to include more work, but they will share in the cost if the project exceeds budget.

Resources for Epicor 9 rolloutsWhile I had him on the phone, I asked Stephens about Epicor's ability to support its push to roll out its new version, Epicor 9, to new and existing customers, especially in light of workforce reductions that Epicor has taken in the past year in its professional services group.

Stephens indicated that headcount is flat from the previous year and that there are adequate consulting resources on board to support Epicor 9 implementations. He also indicated that much of the functionality in Epicor 9 is an upgrade from Epicor's previous Vantage 8 product, though the financial modules are new and different. Hence the major training effort for Epicor's consultants is in the E9 financials.

In response to my question about documentation, Stephens also assured me that the system documentation was all up to date for the new version and in fact sometimes was developed more quickly than the product itself. As this is so different from what I've heard from my own sources, I'd be interested in any feedback readers have on this issue, or any other matter involving Epicor. Leave a comment on this post, or email me privately (my email address is in the right-hand column).

Innovation in services deliveryAs I wrote in my earlier post, Epicor should be commended for at least trying to do something about the problems facing organizations generally in contracting for and implementing ERP. Whether Epicor's Shared Benefits program is an answer remains to be seen as the program is just now being rolled out. Stephens says he expects about 40% of Epicor's new contracts to include the Shared Benefits option and it is the "default" option in writing new business. Over the next few months Epicor should get some early results from this program, which hopefully will demonstrate the success of the concept.

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision.
My consulting firm, Strativa, offers assistance that is independent and unbiased.
For information on how we can help your organization make and carry out these decisions, write to me.

My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.